Corporate Chartering: An Exploration in the Economics of Legal Change

Abstract

The corporate form of business organization, characterized principally by limited liability, share transferability, and perpetual life, existed far in advance of its official recognition by government. In the early nineteenth century and before the unincorporated joint stock company offered through private contracts many of the advantages typically thought to reside exclusively in the corporation.1 Despite these deep historical roots, however, the legal framework surrounding the corporation as we know it today is a relatively recent phenomenon. Permission to incorporate was long granted sparingly by the state and, when granted, was accompanied by restrictions on the amount of authorized capital, on the scope of operations, and on the length of the corporate franchise; “permission to incorporate for ‘any lawful purpose’ was not common until 1875...”2 Thus, while corporateness flourished early, regulation delayed the beginning of the chartered corporation’s rise to prominence until not much more than a century ago.

Keywords

State Legislature Early Nineteenth Century American Political Science Review Legal Change Constitutional Amendment

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We wish to thank Claire Friedland for directing us to some useful data sources. We are also grateful to Henry Butler, Mark Crain, C. M. Lindsay, Henry Manne, Fred McChesney, Robert McCormick, and Clark Nardinelli for helpful comments; the comments of an anonymous referee on an earlier version were particularly valuable in improving the paper. The usual caveat applies.

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